Making the Connection

January 01, 2011

Investment in Human Capital Can Pay Major Returns

By Brad Monterio
The largest scale regulatory overhaul in this century; record unemployment that exceeds 15 million people; economic recession like we’ve never seen before; federal and state budgets that are out of control; political changeover and its unknown impact on policy agendas. There is a lot to be busy—and worried—about today. And it doesn’t end there. There are lots of issues that have the potential to distract us from our priorities and real business at hand as business owners and executives—and CPA firms are not immune.

Attention is often paid to rebuilding the value of a business and not enough about investing in people. We’re busy trying to maintain revenues, lessen the impact of declining revenues, cut costs and manage the bottom line. We’re busy saving our businesses from the pressures of the recession. We’re busy staying afloat. We’re busy being, well, busy.

At the surface, this seems OK, normal even: Work hard, enjoy success. After all, there is nothing wrong with passionate and committed business owners who proactively manage their companies.

However, there’s a lack of emphasis on devoting as much passion and commitment to the people in companies. Human capital is equally, if not more, important to a business’ success.

Henry David Thoreau said, “It is not enough to be busy, so are the ants. The question is, ‘What are we busy about?’” In other words, what are our priorities? An argument can be made that employees are a company’s greatest asset and have the most value to help a business recover from an economic downturn

“The strategic mind-set and desire to hire has been derailed,” said Ramona Farrell, AVA, CFE, managing partner of Ueltzen & Company, LLP, a Sacramento-based forensic accounting firm. “With the economic downturn, there has been reluctance—or perhaps an aversion—to hire or make a further investment in firm members. No one likes uncertainty and at the same time, you cannot allow uncertainty to become the strategic driver for a firm’s lack of execution where human resources is concerned. Firms have deferred their strategic planning and human resource component for long-term growth and success to focus on the now … on what is occurring today.”

Farrell, a member of CalCPA’s Management of an Accounting Practice Committee, recognizes the behavioral shift of CPA firms in the last two years—a move away from investing in people in favor of rebuilding or saving their businesses—and believes the profession needs to make a strategic change.
“I believe when thinking about human resource issues, we need to realign our focus and get back on track with being strategic and moving toward the future,” she says. “How would a CPA firm advise a business client? They would take care of today and, at the same time, keep defining and executing on the future. CPA firms and businesses have been looking inward and focusing on efficiencies and have become complacent in our strategic planning, especially where human resources are concerned.”

The emphasis on hiring, motivating and retaining talented professionals in companies should be something we are being busy about. That’s not to say business aspects should be ignored or placed on the back burner.

“Working on efficiencies is not a bad thing and should be an ongoing process. However, firms need to move from being satisfied with thinking that being more efficient is enough,” Farrell says. “It may be for today, but what about tomorrow? Now is a good time to assess the needs of your firm and potential business opportunities that might be a good fit, and check in with all firm members, not just your partners.”

Keys to a good human resource policy include attracting and retaining talent—ever-present concerns that too often get relegated.

“One of the greatest challenges for CPA firms yesterday, today and tomorrow is retaining the best people. This also translates to hiring good people. If you can retain the people you really want, your firm will get the reputation that it’s a good place to work,” says CPA Mark Schaim of Schaim, Hyde & Company in San Diego, who counsels other CPA firms with practice issues.

“That will facilitate recruiting. I think the main reasons people leave a firm, or are reluctant to join a firm, are poor personnel management, poor training and lack of opportunity to grow and advance. Each of these contributes mightily to the retention problem.”

Poor personnel management and training, as well as lack of advancement and growth opportunities, among others, are significant human resource factors leading to loss of human capital. As corporate culture and the “tone at the top” affect all employees, the responsibility starts with business owners and leaders to build and nurture positive working environments for our most precious assets, our people.

“Poor personnel management results from the fact that most CPA firms give no, or very little, quality management training to their people, partners included,” adds Schaim, a member of CalCPA’s MAP Committee.

“This results in those in supervisory positions making very poor choices about how to handle personnel, how to motivate them, how to help them grow and how to resolve conflicts. Employees get very frustrated and will eventually leave when their supervisors aren’t able to match management styles correctly to the personnel problems with which they are faced.”

So, what is good practice when it comes to human resources policies and practices that emphasize and value human capital? Human resources management is vastly more complex and multifaceted today than just a decade ago with the influx of, among other factors, social media, blogs, telecommuting, IT security risks and generational shift.

Still, there are some steps firms can take to put the focus back on the employees.

Build a Fun, Nurturing Performance-Oriented Culture
My father often said to me, “People work to live, not live to work.” I have always tried to focus on that with respect to my companies. Employees want to come to work knowing that they want to be there, that it’s fun and rewarding to work for the company. They don’t want to fall into the drudgery of going through the motions and just collecting a paycheck, which leads to dissatisfaction, poor performance and ultimately resignation or termination.

Work environments need to nurture talents, encourage creativity, reward strong performance and coach to greatness. Mentoring programs, 360-degree review processes with all levels of staff and clients, career development training, performance-based rewards, corporate outings, special unexpected incentives and more transparent management each contribute to a positive work environment. A management that participates in the company’s oversight by involving employees at all levels to work in, and on, the business is also sure to build a culture of trust that motivates them to help the company succeed.

Manage Expectations: Document Policies and Applying Them Consistently
Along with a nurturing, fun environment come responsibilities to be clear with employees about policies and practices. Make sure policies are documented in an employee manual and be consistent in how you manage to those policies across your talent pool. Employees have no idea what is expected of them if they don’t know what the policies are. Managers need guidance, too. A well-crafted manual will go a long way toward managing expectations. They also help manage risk should any legal matters arise.

Help Employees Reach Their Full Potential
Many of us have heard the adage, “Give a man a fish, feed him for a day. Teach a man to fish, feed him for life.” As Schaim indicated, employees need to see the potential for growth and career development if you expect them to commit to the company for the long haul. That means investing in their professional development and giving them opportunities to learn and grow their skills. The greater their skill, the higher their value to your business—and the higher their value to themselves. Happy people will help you through the good times and bad.

“People join firms for a lot of reasons, not the least of which is to get good training and good quality work,” says Schaim. “If a firm doesn’t have a solid formalized training program that in an employee’s early years emphasizes technical training, a motivated employee will quickly see he or she isn’t going to grow and advance with that firm. They will see a block to their career and will have an incentive to leave.”

This block, as Schaim describes it, isn’t limited to training. Reaching full potential includes advancing through the organization through increasing or different responsibilities and management oversight. There is nothing more demoralizing to an employee to see no way of advancement in the firm.

“The lack of opportunity for career advancement can come from a lack of growth in the firm or a lack of weeding out sub-par personnel,” Schaim says. “It is an unfortunate fact that firms that want to make room for the best people coming up through the ranks have to consider an ‘up-or-out policy.’ This might not be necessary for a firm that isn’t growing and has the employees it wants. But that firm won’t have the ability to hire and retain the top, highly motivated employees. A firm that wants to grow will need the best people they can get and must make opportunities for them in order to keep them.”

Knowledge is for Sharing
Sharing knowledge across your firm elevates employees’ skills and performance. The more your employees know, the more effective and valuable they can be to each other, the firm, your clients and partners. Technology enables innovative ways to store and share information within a secure environment. I’ve seen wiki-type intranets that allow employees to share information and analytical models, engage in discussions, collectively solve problems and more. Whatever your solution, knowledge is power. Empower your staff by giving them a venue to recharge.

There’s plenty to occupy the attention of a business owner and leader in their company. And it’s not an either/or tradeoff in terms of focusing on the business or employees. Both can be done.

“Firms need to be actively looking outward to secure and cultivate the talent today that will help take a firm where it needs to be and wants to be in the future,” says Farrell. “Firms are missing the opportunity to get the right people in place now or to realign positions, and to explore business opportunities that will position their firm and its members for long-term success, not short-term survival.”

So ask yourself today: What are you being busy about?
Brad Monterio is managing director of Colcomgroup, Inc., a management consulting firm specializing in accounting, and managing director of CMH Partners, LLC, both based in New York City.

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